2007 (7) TMI 266 - HC - Income Tax

Return filed on 30.3.1990 was found defective return as it was not accompanied by Profit and Loss Account and Balance Sheet held that time limit for issue of notice u/s 143(2) not starts from the date on which defect is rectified but starts from the date on which return is filed held that notice under section 143(2) could not be issued after 30.9.1990 and therefore the notice dated 3.1.1992 is void ab initio and cannot give rise to a valid assessment u/s 143(3)

Summary

Issues:
1. Validity of notice under section 143(2) of the Income-tax Act, 1961
2. Distinction between defective return and invalid return

Issue 1: Validity of notice under section 143(2) of the Income-tax Act, 1961:
The case involved questions regarding the validity of a notice under section 143(2) of the Income-tax Act, 1961. The Tribunal had referred two questions of law to the High Court, primarily focusing on the timing and legal efficacy of the return filed by the assessee. The main contention was whether the notice issued by the Assessing Officer was valid based on the date of filing the return and the subsequent actions taken by the authorities. The Commissioner of Income-tax (Appeals) and the Tribunal had differing views on the legal consequences of the return filed by the assessee and the timing of the notice under section 143(2).

The High Court analyzed the provisions of the Income-tax Act, specifically sub-section (9) of Section 139, which deals with defective returns and their rectification. The court emphasized that a defective return does not automatically become an invalid return unless the defect is not rectified within the specified period. The court referred to a previous judgment by the Calcutta High Court to support the distinction between defective and invalid returns. It was established that the absence of certain documents, such as profit and loss account and balance sheet, does not render the return invalid if the Assessing Officer accepts it as legally valid and acts upon it. Therefore, the court concluded that the return in question was defective but not invalid, and the notice issued after the specified period was deemed void ab initio.

Issue 2: Distinction between defective return and invalid return:
The High Court delved into the statutory provisions regarding defective and invalid returns under the Income-tax Act. The court highlighted that a defective return can be rectified within a specified period, after which it retains its validity. In contrast, an invalid return arises only when the defect is not rectified within the stipulated time frame. The court referenced a case where a similar situation had been addressed by the Calcutta High Court, emphasizing that the legal validity of a return is not solely determined by the presence of certain documents at the time of filing. The court upheld the Tribunal's finding that the return in question was defective but not invalid, based on the provisions of the Act and previous legal interpretations.

In conclusion, the High Court answered both questions against the revenue and in favor of the assessee, affirming the Tribunal's decision regarding the legal efficacy of the return and the validity of the notice under section 143(2) of the Income-tax Act, 1961. The judgment clarified the distinction between defective and invalid returns, emphasizing the importance of timely rectification of defects to maintain the validity of the return.